Sunday Mon€y Q's, May 11, 2014

Posted by Jill Kerby on May 11 2014 @ 09:00


PMcC writes from Dublin:  I am being transferred to the United States for at least two years.  Our two children no longer live at home and we now have two foreign students living here under the Rent-a Room scheme.  The younger of our children is also in college, doing post-graduate studies but is in rooms. I am wondering if we can maintain our Rent-a-Room scheme if we no longer live here, even temporarily. If our daughter moved back in, would that mean that we still qualify?

The Rent-a-Room relief scheme, which requires you to register with the Revenue, is designed for owner-occupiers, that is, it must be occupied by you as your principal private residence. If you and your wife own the property, and she remained in Ireland as a full-time occupant of the house, she could still collect half the rent, tax-free.  The maximum tax-free amount that can be earned in any year is €10,000 so she could collect €5,000 under the Scheme.


DD writes from Galway: I cannot seem to get a clear explanation from my pension provider regarding my personal retirement bond (PRB) options.  Its value today is €33,000 and I am 55 years of age. It will only provide me with a tiny pension at retirement. I can cash it in anytime now as the original employer is no longer in business. I have no other policy or pension and am unemployed. When is the best time to cash it in? If I leave it until my retirement, will it affect my pension entitlements? How much tax will I pay?

Your private retirement bond (PRB – also commonly known as a buy out bond is either purchased as an option you exercise if you leave your employer’s service and do not want to leave your pension fund with it until retirement, or, by your occupational pension trustees on your behalf if the company scheme is being wound up. 

The current value of your Buy Out bond at just €33,000 is very low. I suspect it is less than one and half times what your final salary was with your ex-employer, that being the multiple of salary that everyone in an occupational pension can claim, tax free from their pension fund (or buy out bond in your case) when they retire.

With bond rates so low – and these rates determine the size of the pension income you would receive – annuitising just €33,000 right now would produce a pretty insignificant annual income stream – perhaps no more than €100 a month. Inflation will eat relentlessly away at its spending power.

Even if your bond was worth €50,000 in 12 years time when you reach the official state retirement age of 67 in your case, it would still only produce an income of about €200 a month at today’s bond rates. We don’t know what the state pension will be worth when you retire, but such a tiny private pension income is unlikely to have much of an impact on the tax you will pay (if any) if your only other source of income comes from the state pension.

Finally, I hope you can get some good, impartial advice to about what to do with the €33,000 to help supplement your existing income until find new employment.  It could possibly have an impact on future social welfare benefits if it is included as a means-testing exercise. Your local Citizens Advice Centre or credit union should be of assistance.




IM writes from Dublin: I am 61, receive the widow’s pension, do some freelance work and hope to shortly obtain my half of my late husband’s pension, the other 50% of which is to go to our children. It is a considerable sum and why concern is how to invest it wisely fro one going income and sort of reserve fund. I still have a mortgage and monthly repayments of about €1,200 but after doing some research I was thinking of putting perhaps a third into a managed commercial property fund for income; tax free prize bonds for a small amount of income, a woodland scheme, perhaps a rental property in the UK, where some of my children live and some precious metal coins.

You have some big decisions to make, which can’t be easy after a bereavement, but I’m not sure that the different options you’ve mentioned would be considered very suitable, or diversified by any of the good, fee based advisers that I know. For one thing, your list is heavily weighted towards property and commodities (timber and precious metals) but there is no mention of well-priced equities or lower risk bonds. (You might want to consider paying off your family home before buying any more property.)

Meanwhile, the tax-free Prize Bonds are a form of gambling that pay no interest or dividends of any kind and are highly vulnerable to inflation. The number and value of Prize Savings has been slashed in recent years by NTMA and nationally produce an average ‘yield’ for holders of no more than 2%.

A good, independent, experienced and fee-based adviser will take the time to explain what a properly diversified and balanced portfolio might look like, relative to your needs, expectations and risk profile.  To get the best out of such a consultation, make sure you go prepared with a proper schedule of

all your income, assets, taxes and household expenditure. List all your existing financial contracts, investments, debt and give some thought to both your short, medium and long term expectations. Be sure to ask in advance about the advisers fee. 

And keep in mind that you are under no obligation to the adviser to act on any of his/her recommendations. Take your time. This is your money, and you are the one, not the adviser, who will have to live with how it is finally invested.




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